Axiata not pulling out of India yet

• Losses from Indian associate Idea push Axiata into the red
• Turnaround in India expected around three years from now

MALAYSIA-based regional telco group Axiata Group Bhd (Axiata) appears determined to stay in the Indian market via its investment in Idea Cellular Ltd (Idea), despite market challenges and the group’s recent slip into the red due to losses posted from the Indian telco.

Axiata slipped into the red in the first quarter ended March 31, 2018, recording a net loss of RM147.41 million compared to a net profit of RM239.02 million the previous quarter.

In a statement on May 22, the company attributed the loss to the higher amount of losses from Idea of RM124.3 million as the Indian telecommunications market continued to struggle with the price wars and a hypercompetitive market.

According to Axiata group chief executive officer and president Jamaludin Ibrahim (pic), India is a 1.2 billion market that is huge and with a close to one billion addressable market, “we are very optimistic”.

“Looking at three to four years from now, there’s no reason to exit India. If however, we find a better investment elsewhere maybe because we want to do broadband in Indonesia or Sri Lanka…do I borrow from the market or do I sell in India and use that money [to fund the venture]?

“There’s no reason to sell, we might as well wait for the industry to get better. If we wanted to sell, it’s because we’d get a better return elsewhere,” he added.

Idea and Vodafone India Limited are currently en route to a merger that will make the merged entity the largest telco in India.

However, ahead of the merger, Axiata did not participate in the new issuance of Idea shares, which caused a loss of dilution from Idea of RM358 million in 1Q 2018 due to its non-participation, reducing Axiata’s stake in Idea from 19.7% to 16.3%. At the point of merger, Axiata’s stake will be further diluted to 8%.

Jamaludin said that the company foresees a technical impairment of between RM2 billion and RM3 billion at the point of the Idea-Vodafone merger.

Speaking to reporters at the press conference on May 23, he said the merger still requires approvals from two Indian authorities and therefore is likely to occur in the coming quarter.

He also said that Axiata was not concerned about the impairment as it was non-cash and would not impact its normalised earnings and dividend-paying ability.

When asked if a turnaround in the Indian telco market was imminent post-merger, he said that they are confident, but not in the short term.

“A lot of things are happening in India, companies are failing and closing down. But beyond two years or three at the very worst, the picture we see is this—after all the bankruptcies and mergers, there will be three companies left: Idea-Vodafone, Bharti Airtel and Reliance Jio.”

He believes that Reliance Jio will cease to be as aggressive as it is today as it needs to monetise its investments.

“The landscape may still be very competitive, but not at the level it is today. Plus there will be merger synergies; we can invest less to get more because it is the merger of the second and third largest player to become the largest telco there. We will have economies of scale, we have synergy benefits from the merger.”

He said that the consolidation of the Indian telco market from 11 to three players and maybe with the rationalisation of the competitive environment, they believe there will be more than a turnaround two to three years from now.

“But to be realistic about it, the next one year will still be a challenge.”

When asked what the outlook is like for Axiata this year, he noted that this year India will be challenging and “cannot be resolved easily”. He added that the group is cautiously optimistic that most of their companies will do well this year.

However due to the technical impairment and if the ringgit is still strong, it will be tough going for the group.

Commenting on the possibility of a Telekom Malaysia Bhd (TM)-Axiata merger, he said that they are in discussions with TM on their current plans.

“They use our mobile network and we use their HSBB network. Times have changed so much so we are renegotiating to see how best we can work on our agreements. That is our focus. When we look at benefits of a merger, 60% to 70% of such a merger comes from network synergies.”

He added that while he was not ruling out a merger years from now, at this point he “wants to stress working on how to leverage on each other’s network so we can gain from each other and compete”.

The group also expects regulatory challenges in Sri Lanka, Bangladesh and Malaysia.

“In the case of Sri Lanka, our fixed line license has not been renewed. We are allowed to operate there but with some restrictions and we are working on that. In Bangladesh, it is mostly taxation issues which are industry issues,” he explained.

He added that in Malaysia, we have a farsighted regulatory environment, however there is uncertainty surrounding the allocation of the 700 MHz spectrum.

“And with the announcement recently with regards to GST, we are trying to find out what the new ruling will be regarding telecommunication services.”

As for its tower company edotco, Jamaludin said it is aggressively looking at opportunities for a controlling stake in up to two companies. “We want to be more substantial so we can quickly become among the largest in the world. We’re looking at the Asean and South Asian market,” he said.

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